The role of reputation capital in the investment banking industry

Abstract

Based on the information-related view of financial intermediation and the role of reputation capital, this study contributes to the extant literature by designing an empirically testable hypothesis related to the existence and use of reputation capital. It is hypothesized that one of the consequences of a breach of trust between investment banks and their clients is a deterioration in the banks' market value. For at least one of the event study methods used herein (i.e., the Sign test), evidence is found at the 1% level of significance in support of the hypothesized market reaction to reputation-damaging events.